Washington, D.C.—Last week, the World Bank’s independent grievance mechanism, the Inspection Panel, was authorized to conduct a full investigation into alleged policy violations in the Bank’s $3.75 billion loan to South African power utility Eskom for construction of the world’s fourth largest coal-fired power plant. Civil society organizations commended the decision to investigate, claiming that financing Eskom’s construction of a coal-fired power plant will have significant negative public health and environmental impacts, hindering community members’ economic opportunities and standards of living.

Local opposition to the loan culminated in the formal complaint, filed by South African NGOs Earthlife and groundWork on behalf of residents of the Waterberg area of Limpopo Province, where the Medupi coal plant is currently under construction. They cited fears over health impacts from air pollution, constrained access to water, and livelihood impacts from land and water degradation. The groups further alleged that the loan will make it nearly impossible for South Africa to meet its commitments to reducing global warming emissions.

In its statement explaining its recommendation for a full investigation, the Panel cited its visit to local communities, saying it “was struck by the widespread level of concern among Requesters and other local residents about the potential impacts of the Project, especially local social and environmental impacts.”

According to Sunita Dubey of groundWork South Africa, “Communities should not have to choose between affordable electricity and the health of their children. This is a false choice. We hope that the World Bank will learn from its terrible mistake in South Africa and will mandate investment only in clean, sustainable, renewable energies going forward. The Bank can – and must - demonstrate that this lesson is understood as it drafts its new Energy Strategy. An Energy Strategy that allows for another Medupi is the wrong strategy.”

The Bank is currently reviewing it Energy Strategy, with the aim of putting in place a new strategy in 2011 to guide its energy lending portfolio for the next decade.

“The Inspection Panel’s findings should help convince the World Bank, once and for all, that fossil fuels must not receive limited financial resources, especially in a climate-constrained world. This should be reflected in the World Bank’s new Energy Strategy,” said Karen Orenstein, International Policy Campaigner of Friends of the Earth U.S.

The World Bank loan to Eskom for the Medupi plant attracted tremendous opposition from civil society in South Africa and abroad, in what was one of the most contentious World Bank Board approvals in recent memory.

According to Africa Action, the investigation is a sober acknowledgement that the actions of the World Bank related to the Eskom loan have been aimed neither at promoting access to energy for local communities nor South Africa’s poor, but rather prioritizing the needs of large industry.

“The World Bank strategy was to promote this loan by purporting that it would benefit poor communities, but this is hardly the case. It is regrettable that the World Bank and the South African Government, with their allies, failed to listen to the voices of communities like those in the Waterberg area who are under threat from the coal industry,” said Gerald LeMelle, executive director of Africa Action.

Meanwhile, another massive investment in South African coal is being considered by the U.S. Export-Import Bank (Ex-Im Bank) for the Kusile coal plant in neighboring Mpumalanga Province, which has already borne a heavy price as the center of South Africa’s coal production and consumption.

LeMelle added, “The U.S. government will face a test of its commitment to mitigating climate change and protecting human rights as US Ex-Im Bank considers financing for Kusile.”